7 Big Mistakes You Need to Avoid When Paying Off Your Credit Card Debt

There are lots of mistakes you can make when paying off your credit card debt. It's in your best interest to do everything you can to pay off the debt promptly as it can cost you interest in the double digits. You should set a goal and come up with a plan to pay off your balance. But after that, it is not just time to relax. There are many mistakes you should avoid so you don’t pay more than you have to. Here are some of the common mistake people make most common errors people make when paying off debt:

1. Not having a budget

If you plan to pay off your credit card debt without a plan in place, there is a high chance that the money you plan to put towards paying off this debt is going to go elsewhere. By creating a budget, you are better able to prevent your money from going to wants instead of needs. First, review your monthly budget and see what areas you can cut costs on. This can be food, clothing, entertainment, etc. Use this extra money and pay off more of your credit card debt instead. Check out some of our articles on creating budgets and saving money here

2. Applying for a personal loan with a lower interest rate

Do not assume that you can just replace your credit card debt with a personal loan. It is not trading out debts as one might think. If you have $5000 in credit card debt and you pay $400 a month with 17% interest, it will take you 14 months to pay off the debt and you will pay $542 in interest. If you take out a personal loan with an interest rate of 4%, it will take you 13 months to pay off the loan and you will pay $116 in interest. 

3. Ignoring balance transfer offers

If you are close to paying off your credit card debt, look up short-term options instead of wasting money on paying interest. If you open a balance transfer credit card, you can save a lot of money on interest as these credit cards come with a lower introductory interest rate for a certain period of time (including transfer fees). These rates will then increase to a higher annual percentage rate after this period of time ends. If you are ready to pay off your credit cards within this time period, you are doing yourself a favor by researching balance transfer offers.

Consolidating your credit card balances could save you a lot of money because of the lower interest rate. It lets you live on a more reasonable payment schedule and avoid late fees. 

4. Focusing only on saving money instead of making money

If you have decreased your spending and you still don’t have enough money to pay off credit card debt, consider the amount of money you are currently making. Getting another job or taking up a side hustle to make extra money could help you keep up with your payoff schedule. Bringing in an extra $50 a week makes a big difference. Make sure you have a goal for the money you earn in your side hustle as well as the amount of time you want to dedicate to it. If you have a time frame that you want to do it and an approximate date where you stop, you will be more motivated and less likely to burn out from being overworked. 

5. Not asking for any help

If you are overwhelmed by the amount of debt you have, it might be time to as an expert for help. A credit counselor can help you go over your finances, make recommendations, and come up with a game plan to help you improve. They could help you obtain a credit report, organize your credit accounts, develop a budget, and set up a plan to help you pay off your debt. If your debt is temporary but urgent, you can ask the credit card issuer for a break. Credit card hardship programs are designed for people who have an emergency in which they can’t pay off the credit card debt at the moment since the money has to be directed elsewhere. A little assistance can help you temporarily suspend minimum payments and decrease your interest rate. 

6. Not remembering the residual interest

Residual interest, or trailing interest, is the interest that accumulates in the time period between your account closing and your payment. If you decide to pay down your credit card debt in full, but you schedule it for a few days later, you will be charged interest on the amount you paid for the number of days in between. It can be a small amount of money, but if you don’t pay the residual interest, interest will continue to accrue on this amount.

Many people make this mistake as they think that they have paid the balance in full and not paying it will result in late fees and decrease your credit score. Instead of scheduling a payment, call your credit card company for the full payoff amount as of the date the issuer will receive the payment. After, monitor your credit card statement for a few months to ensure that the residual interest has been paid off. 

7. Losing sight of the future

Paying off your credit debt is important, but your future is also important. If you put all of your money toward credit card repayment, you might be setting yourself up for a lot of financial trouble down the road. In the short term, you might have an unexpected cost come up and no emergency fund to cover the cost if all of the money went toward credit card debt payment. In the long term, you will hurt your retirement savings if you don’t invest early and let compound interest accrue. Even when repaying your debt, you want to think about your life after you make the last payment and keeping up with the strategies utilized to get you out of debt rather than going back to the bad habits that helped you accrue debt in the first place. 

Debt Consolidation 101: How to Weigh Your Pros and Cons

If you have debt in many different areas of your life — whether it be personal loans, medical bills, or credit cards — debt consolidation can combine all of the debt into one fixed monthly payment. If getting a debt consolidation loan or using a balance transfer credit card lowers your annual percentage rate, it might make sense. However, even at a lower rate, there are pros and cons to debt consolidation. 

The pros of debt consolidation:

1. You will have one fixed monthly payment

With debt consolidation, you won’t have to keep track of multiple monthly payments and interest rates. Instead, consolidation will let you combine all of the debt into one payment with a fixed interest rate that will not change over the life of the loan. If you have a balance transfer card, the interest rate won’t change during the promotional period. 

2. You might get a lower rate

Consolidating your debt means paying off your debt at a lower interest rate. This could save you money and help you pay off your debt faster. If you qualify for a balance transfer card, you would pay no interest during the promotional period which can last as long as 18 months. After that, you will probably have to pay a 3% to 5% balance transfer fee. If you did not consolidate your debt, your debt of $9,000 with a combined APR of 25%, would come out to a combined monthly payment of $500 and $2500 in interest over two years.

On the other hand, if you took out a debt consolidation loan with a 17% APR and a two-year period of repayment, you would only have to pay $445 a month. In the end, you would save $820 in interest. The money you save on monthly payments can then go toward paying off the loan sooner. 

3. You can build credit

If you make your monthly debt payments on time and in full, the net effect on your credit score will probably be positive, especially if you are paying off credit card debt. Paying off a credit card lowers one’s credit utilization ratio which is the largest factor that helps to determine your credit score. 

4. Other options like debt settlement programs will hurt your credit score

Debt settlement programs where you hire a credit counseling agency to negotiate on your behalf to lower your debt payments can actually hurt your credit score. If your debt is not paid in full or if you miss payments, your score will go down. Debt settlement programs also might have large fees and/or scams. 

Cons of consolidating your debt:

1. You could fall behind on making payments

If you miss paying off your new debt, you will most likely be in a worse position than before you consolidated your debt. If you don’t pay off your balance transfer card within the promotional period where you have no interest, you will have to pay it at a higher APR. You will rack up late fees if you don’t pay your consolidation loan on time. This will also be reported to credit bureaus which will make your credit score go down. Before you consolidate your debt, you need to make sure that you can pay off the debt every month of the repayment period. 

2. You might not get a lower rate on payments

Balance transfer cards are difficult to qualify for as you have to have a good credit score of usually 690 or higher on the FICO scale. Debt consolidation loans are easier to qualify for as there are loans for people with a bad credit score of 629 or lower on the FICO scale. However, only borrowers that have the highest scores will get the lowest rates. Unless you are being offered a lower rate than what is already on your individual debts, debt consolidation might not be the best idea. Another strategy to payoff your debt such as the debt avalanche or debt snowball methods could be a better idea. If you are looking to consolidate with a loan, you can prequalify with some lenders in order to get a sense of the rates without impacting your credit score. 

3. You haven’t solved the problem at the root

Yes, debt consolidation is helpful, but it is not going to fix recurring debt or your behaviors that led you here in the first place. If you have a problem with overspending your money or sticking to a budget, debt consolidation might be more harmful than helpful. If you take out a loan to pay off your credit cards, these cards will have a balance of zero again. A person who has a problem with overshopping might be tempted to use the cards before the debt is paid off. This would bury them in even more debt. If you have more debt than is manageable, it might be better to just see a credit counselor at a reputable nonprofit. They can help you set up a debt management plan. 

4. Debt counseling fees will add to your expenses

A debt consolidation loan might help you better pay off your debt, but this loan often means meeting with a debt counseling agency to put together a strategy to pay off the debt. You will have to pay them a fee every month. Yes, it can be helpful, but it will also be another expense to your monthly budget. Before doing this, make sure to do your research in order to avoid scams. 


Overall, everyone is different so everyone is going to have debt consolidation plans/strategies that best suit them. What everyone needs to take into account, however, is your budget, financial health, and living within or under your means until the debt is paid off. One might consider a home equity loan for larger debts or long-term expenses. These offer better interest rates as these loans are secured by your home. On the other hand, if you only have a small amount of debt, paying it off as a balance transfer to a new credit card might be the right option. This is only worth it if you are getting a better rate, and if you have good credit, personal and home equity loans might be better.

A personal loan is the most used option in order to consolidate debt. Your rate is dependent upon your credit history as poor credit can make your APR on your loans above 30%. One last option some people use is cash-out refinancing. This is a restructured loan for a larger amount than what you would owe on your original mortgage or any other lasting home loan. The difference between what you owe and your refinanced loan can be paid back to you in cash and put towards debt consolidation. This allows you a single bill each month. It's unlike a home equity loan, which is an additional loan to your mortgage loan that you will have to manage and repay separately. 

Most importantly, what is best is going to look different for everyone. You need to evaluate your goals, your current position and plan out each month. Through this, you can pay off your debt and eventually be debt-free and less stressed.